With all the new NGLs coming on, there has been periodic hand wringing about fractionator capacity. The good news is that there is a lot of capacity being built. So much so that it appears that the fractionators will be able to keep up with the producers and inbound pipes, at least most of the time. Notice however, that even though new NGL production from shale gas is growing most rapidly in the Northeast over 60 percent of the new capacity will be at Mont Belvieu or the Texas Gulf Coast region. Today we examine why Mont Belvieu remains the center of the NGL universe.
There are 27 fractionation projects in the works around the U.S., some greenfield, some expansions. If these projects (announced through 2014) are completed as planned, they will add 1.3 MMb/d of fractionation capacity increasing total US capacity to a whopping 4.6MMb/d, an increase of over 40% in just three years. Fourteen of these projects – representing over 60 percent of the new capacity are being built either at Mont Belvieu or elsewhere on the Texas Gulf Coast. All that construction is no small feat. These facilities are gigantic, high-dollar investments (~$400MM for a 100Mb/d plant) and they take at least a year and a half to complete. And cash flow? Assuming the average fractionation fee these days is 6 cents/gallon, that 100Mb/d fractionator will generate over $250M/day in fees alone. You can do the math….all together, this new capacity will generate lots of low risk fee based revenue. But just as important, this fractionation capacity will provide the capability to turn additional y-grade (raw mix) into more valuable purity products.
So the race is on to get fractionation capacity up and running to capture a share of the growing market while it’s hot and while lucrative, firm contracts can be had. In all cases frac rates are up, contract terms are longer and nearly every bit of capacity is spoken for. Unless plans change, new fractionation capacity will be rolling out over the next 24 months on a pretty steady basis. In this blog series we will report on the progress of new fractionation by reviewing the remaining projects (and a few that are still being considered) and comparing them to the latest production forecasts. We begin with the largest NGL fractionation hub in the US - Mont Belvieu because in spite of the Northeast gaining momentum, most of the new capacity continues to be built at Mont Belvieu or in the Texas Gulf Coast region.
The Big Kahuna – Mont Belvieu
By the end of 2014 a total of 1.7MMb/d of fractionation capacity will be operating in the Mont Belvieu area alone. That’s 620MMb/d or 50% more than is available today. That represents well over $2B invested collectively by midstream energy companies. And that’s not all - because each project (or fractionator) requires new storage wells, brine ponds, receipt and delivery infrastructure, and locked in firm long term fractionation agreements with credit worthy energy companies. The table below lists the 7 new projects expected online by the end of 2014 as well as the recently completed Enterprise plant.
In Can Mont Belvieu Handle the NGL Surge Part I we talked about the fact that the Belvieu NGL infrastructure is dominated by the “Big Four” players - Enterprise, OneOk, Targa, and Lone Star. No surprise then that they are smack in the middle of the fractionation growth. We will take a look at each company and their respective fractionation projects in turn. But don’t forget that these large companies share the risks of building fractionation capacity by partnering with smaller players. The often tangled ownership of these projects is also wrapped up with the use of Master Limited Partnership (MLP) structures that further reduce the risk of the parent company (see Masters of the Midstream). The other major fractionator owner aside from the Big Four at Belvieu is Gulf Coast Fractionators, itself a partnership between Conoco, Devon and Targa.
New Capacity on the way
The chart below shows the new capacity coming online for the “Big Four” Mont Belvieu fractionators as well as the 145 Mb/d Gulf Coast Fractionation plant that was completed earlier this year.
Enterprise Products Partners L.P.
Enterprise Products completed their sixth fractionator early and under budget. The fractionator’s 85 Mb/d capacity is spoken for with firm long-term commitments. This fractionator will handle product coming from Enterprises’ new Yoakum natural gas processing facility in Lavaca County, Texas which is cranking out 90Mb/d of NGL mix, as well as new NGL production from the Eagle Ford and from other basins in the Rocky Mountains and Mid-continent region. It will also lighten up the load on their Louisiana fractionators. Enterprise has one more 85Mb/d fractionator on the way that should be complete by the end of 2014 and will make them the largest fractionator in Mont Belvieu with about 39% of total capacity. Enterprise also has fractionation at Hobbs, New Mexico (75Mb/d), Shoup and Armstrong,TX (100Mb/d) and Louisiana,(305Mb/d.
Oneok has two 75Mb/d fractionator projects underway. Both are expected to be complete by mid-2014 giving them 20% of the fractionation capacity in Mont Belvieu. OneOk reports that each train will cost $375MM-$415MM. OneOk is also building the Sterling III pipeline (start up in late 2013) that will have the capability to move 193Mb/d (eventually 250Mb/d) of either raw (y-grade) or purity NGL’s to Mont Belvieu.
The Targa fractionation expansion (also known as Cedar Bayou Fractionator) will add 100 Mb/d to the company’s existing 250 Mb/d capacity during 2013. Targa also has a non-operating ownership stake in Gulf Coast Fractionators. The Targa expansion is supported by long-term contracts. DCP Midstream (owned by Conoco and Spectra) has the anchor fractionation agreement. DCP is committing product via an interconnection to their $1B 720-mile Sandhills Pipeline that will transport 100Mb/d of Y-grade (raw stream) from the Permian Basin and Eagle Ford to Mont Belvieu. The Sandhills Pipeline will support Targa’s gas plants and Avalon/Bone Springs production in the Permian Basin as well as DCP’s new Eagle gas plant constructed to support Eagle Ford production. The fractionator expansion will cost an estimated $360MM. Targa has additional fractionators near Fort Worth, Texas, (15Mb/d), and on the Louisiana Gulf Coast (68Mb/d).
Lone Star (part of Energy Transfer Partners, ETP) will construct two new 100Mb/d fractionators by mid-2014. These will provide Lone Star their first experience as operating owners of Mont Belvieu fractionation. Fractionator I will come online first quarter, 2013 and is contracted 100%. The estimated cost is $390MM. Fractionator II is expected to be complete by the end of first quarter, 2014. We understand it is also nearly completely contracted. The second fractionator is expected to cost $350MM. Lone Star plans on utilizing most of the new capacity to handle liquids coming off the ETP Justice Pipeline (Woodford Shale) and West Texas Gateway pipeline. When all is done, they will have about 12% of the total capacity in Mont Belvieu.
Gulf Coast Fractionators
Gulf Coast Fractionators is a partnership between Conoco/Phillips 66 , Devon Energy and Targa Resources . Conoco is the operator. They were actually the first to complete an expansion earlier this year. They increased their capacity 43% (from 102Mb/d to 145Mb/d). This expansion cost about $75MM. They had to take the existing fractionator down to complete the expansion - causing havoc for some producers that relied on that capacity. When fractionation stops, NGL’s cannot be produced or must be stored and bottom line, cash flow is affected.
Why Mont Belvieu?
With eight new projects in Belvieu and another 6 in the Texas Gulf Coast region, there has to be good reason for building new fractionation capacity there. As we learned in “Can Mont Belvieu Handle the NGL Supply Surge? – Part I” the physical location on top of natural storage caverns is advantageous. The continued dominance of Mont Belvieu of course owes something to the existing facilities and infrastructure that provide trading and connectivity to downstream demand. However, the greatest advantage that the Mont Belvieu and Gulf Coast locations hold is their proximity to two critical components in today’s NGL value chain. The first is olefin crackers that can transform growing supplies of ethane from fractionation into various grades of plastics now exported from the Gulf Coast. Belvieu is close to existing olefin cracker capacity as well as the expansions currently underway to increase that capacity. The Texas Gulf Coast is also where new olefin cracker capacity is being built to come online from 2017 onwards. Low feedstock costs relative to their international rivals (who typically use heavier naphtha feeds for their crackers) mean that US petrochemical plants can export their product profitably to Asia and Europe.
The second critical component that Belvieu offers NGL producers is easy and growing access to export facilities for propane and butane. We talked about the propane export market recently (see Exports Prescribed for Propane Relief) and learned how critical that market has become in balancing excess propane production. The same goes for normal butane and there are ready markets for these two products in Latin America. The NGL world is changing. Because the US is a growing producer of low cost NGLs and petrochemicals, the natural market for incremental production and the petrochemical derivatives from that production now lies overseas.
In spite of rising NGLs from gas processing in the Northeast, the Gulf Coast region with Mont Belvieu at its heart remains the center of choice for new fractionation capacity. And that is not about to change because the growing importance of export markets for NGLs and their petrochemical derivatives will continue to make the Gulf Coast the center of the NGL universe. Next in our series we check out the fractionation projects underway in the Northeast. It is a different world than Mont Belvieu and a whole different cast of players.
 Source, Bentek NGL Facilities Databank
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